Business Valuation, Growing Value And Liquidity Realization (Part XXIII Of eBook Series)

Phase V – Adding Value

Value Drivers Improve Corporate Value – important factors that determine or cause an increase in value of a business, as viewed by investors.
• Different factors drive and impact the values of businesses.
• These are value drivers that make a business more or less attractive to lenders, buyers, and investors.
• Addressing those value drivers is important in distinguishing the value of the subject business from its counterparts in its industry.

Bottom line – your value drivers integrated into an interactive high-touch approach result in greater value.

• Value drivers help you focus on the value habit by aligning performance measures:
 Human Resources and Organization − Talent & Quality of Management
 Sales and Marketing & Innovation − Customer Retention – Quality of Products & Services
 Financial Soundness − Ability to Finance the Plan
 Physical Assets and Systems/Administration − Available to achieve the Plan
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Business Valuation, Growing Value And Liquidity Realization (Part XXII Of eBook Series)

Phase I – Comprehensive Business Review (CBR)

Foundation Documents

1. Financial Projections and Pro Forma Financial Statements – presents 4-year integrated prospective income statements, balance sheets and cash flows, based on comprehensive assumptions developed by a Trusted Business Advisor and the company, using an “other comprehensive basis of accounting” (OCBOA), and providing assurance that the use of proceeds is sufficient to achieve the company’s goals.

2. Valuation Opinion and Intellectual Property Appraisal – determines the fair market value of the entire enterprise (100%) and minority interests. The objective is to express an unambiguous opinion as to the value of the company, which opinion is set forth in a Report that is supported by all procedures that a Trusted Business Advisor deems to be relevant to the valuation, and thereby validates the worth of the entity.
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Business Valuation, Growing Value And Liquidity Realization (Part XXI Of Book Series)

Strategic Planning for Value Growth™ – by aligning individual, organizational, and cross-departmental initiatives to identify and improve processes for meeting customer and shareholder objectives.

The best approach is to express your vision and strategy of your organization as a set of:

• Goals and their associated objectives,
• Measures,
• Projected values, and
• Initiatives.

A strategic planning and management system:

• Aligns business activities to the vision and strategy of the company’s management,
• Improves internal and external communications, and
• Monitors organizational performance against strategic goals and objectives.
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Michael Gilburd - Business Valuation Series

Comprehensive Business Review – A Trusted Business Advisor can help you author, design and develop a very clear Business Plan that meets the requirements of a sophisticated audience.

Generally, less is more – the shorter the better. The challenge is to determine how much to emphasize each section, how they interrelate, and how to show your plan as a compelling story.

What to expect:

By using this proven Capital Markets Sourcing Document, you should properly address:

Company Profile
● Business description – summary
● Unique attributes – trends and opportunities
● Deal potential
● Exit / liquidity event
● Investment highlights – loan or investment request
● Collateral
● Use of proceeds
● Financial data – historical and prospective
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Business Valuation, Growing Value And Liquidity Realization (Part XVI Of Book Series)-Michael Gilburd

Economic Analysis of Damages – valuation and economic expertise is used for damage analysis and expert testimony to provide an opinion as to losses. Experts opine and testify in the following areas:

Lost Business Profits Analysis

• Total Business Loss
 Forced Market Exit/Shutdown
 Exclusion from Market Entry
 Loss of Business Opportunity
 Partial or Temporary Business Loss
 Product or Service Line Loss
 Business Decline
 Business Interruption
 Delay in Market Entry
 Diminished Robustness of Market Entry/Growth

Other Economic Analyses Pertaining to Damages

• Fair Market Price or Value
• Going Concern Value
• Loss of Reasonable Royalties
• Unjust Enrichment
• Loss of Product, Goods in Process, or Raw Materials
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Business Valuation, Growing Value And Liquidity Realization (Part XV Of Book Series)

Fairness and Solvency Opinions

A Fairness Opinion is an independent qualified third-party financial expert’s statement as to the “fairness”, from a financial point of view of a specified financial transaction, based on professional judgment supported by collected data. The “fairness” is from the standpoint of a certain designated party or parties (the company or majority shareholders), usually vis-à-vis minority shareholders.

Fairness opinions are established on the basis of a valuation report and require an in-depth analysis of the companies involved and the terms and conditions of the transaction. Fairness opinions are used to support decision making by corporate leadership and to assist shareholders or affected parties in evaluating the terms of such a proposal.

In rendering a fairness opinion, the author evaluates:
 The value of the business or assets transferred or exchanged.
 The value and form of consideration received or paid.
 Available alternatives offering greater value than the proposed transaction, determined by different approaches, including a testing of the market.
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Business Valuation, Growing Value And Liquidity Realization (Part XIV Of Book Series)

Compensation Studies – valuation expertise provides a platform to balance shareholder value and tax authority issues to form an opinion as to fair compensation for key employees.

Since the amount of compensation paid to key employees directly impacts shareholder value, a comprehensive approach that includes validation of stockholders’ investment is key to arriving at fair compensation.

The challenge is to determine how much compensation is fair without diminishing shareholder value.

Such studies include:
 Management compensation comparables
 Enterprise value (i.e., Business Valuation)
 Majority and minority shareholder value
 Royalty and commission arrangement impact

Examples of such studies:

 Nasdaq Public Company, Information Technology and Software. A Company seeks to evaluate the compensation a terminated CEO had been earning and the reasonableness of the compensation he was alleging he was due. The result was the CEO settled for a significant decrease.
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Business Valuation, Growing Value And Liquidity Realization (Part XIII Of Book Series)

Value Adding Navigator™ – This is an example How a Trusted Business Advisor can help you add value to your business.

Trusted Business Advisors work with business owners and their advisors to:
• Determine the value of their business or intellectual property.
• Build and grow the value by addressing financial strengths and weaknesses to reflect potential to maximize value.
• Maximize capital markets choices by grading appropriate methods for advancing the business.
• Create liquidity options and strategic advice with a comprehensive approach.
• Benchmark results in enterprise value, including intangible value.
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Business Valuation, Growing Value And Liquidity Realization (Part XII Of Book Series)

Section 2 – Financial Analysis Report

The second step is creating an understanding of the financial strengths and weaknesses, a section most valuable to a prudent business owner:

1. Financial analysis helps in assessing Your Company’s financial performance over time. Past sales and earnings, while not a guarantee of future performance, can provide an indication of
future growth potential and can put Your Company’s current performance into a historical context. For example, a company with steadily rising sales and earnings is worth more than one
with little or no growth.

2. Trends and key factors impact results, and comparing financial performance and financial statement ratios with available industry performance measures also provides an indication of the
attainability of future results.

3. Ratio analysis provides a relationship among financial statement accounts that indicates trends for Your Company. These indications of overall probability of future success or failure
often influence premiums and discounts while measuring and monitoring financial performance.

This section analyzes Your Company’s financial performance relative to itself and relative to the industry in which Your Company operates.
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Business Valuation, Growing Value And Liquidity Realization (Part XI Of Book Series)

► The Blueprint for Building Value™ will quantify the financial value of your business, analyze your business, interpret your vision, and effectively communicate this information to key stakeholders. This tool will improve business performance and heighten your degree of confidence to make the best capital markets decision.

The decision may be to sell the business, finance the business, raise capital, grow or cultivate the business, create an ESOP, insure the business or its Key People, or develop a comprehensive estate or gift tax plan, or a combination of strategies.

This insightful tool identifies and measures Your Company’s strengths and weaknesses − which if properly acted upon will increase the business’s value.

• The Blueprint for Building Value™ is a comprehensive report of a substantive analysis of your business including its financial valuation, operational and structural aspects, and
capital markets alternatives.

• The Blueprint for Building Value’s Questionnaire Workbook is designed to accumulate and put in one place the most critical business information, in a streamlined no-nonsense fashion.

• The benefits that the Blueprint for Building Value™ brings are many (including but not limited to the following):
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Michael Gilburd - Business Valuations

What Will the Results Show?

Companies and brands are evaluated by their customers and prospects across a range of factors. Your first job is to determine what factors are relevant to each individual situation. This is done any number of ways:

• By conducting a number of interviews with company staff to get their take on what is felt to be relevant
• Exploring previous research, the company may have conducted to determine customer attitudes or satisfaction
• Conducting a small number of telephone interviews with selected clients (both past and present) to surface their attitudes toward the company
• Conducting one or two focus groups to surface attitudes as well as brainstorm factors that would be important to customers in keeping them loyal

Once the relevant factors are agreed upon, data is collected among the appropriate target.
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Michael Gilburd on Business Valuations

The Power of Customer Insight Research

For many decades, researchers have worked with companies and brands to assess their position in the marketplace. The same attitude and customer insight research employed by both B to C and B to B companies are powerful tools for generating data that can strongly affect a determination of value. Such research can take any number of forms and include:

• Market segmentation studies
• Awareness, attitude and image studies
• Psychographic and ethnographic studies
• Package and product testing studies
• Advertising and communication effectiveness studies

Whatever research approach is used, the goal is the same: to determine the strength of the company or brand as compared to competition.

Often, though, valuation experts ignore the importance of customer insight research. They fail to realize that by measuring the attitudes of customers and prospects, and producing hard data across a range of factors can greatly increase the value of a company.

Consider how you, and your competition, are perceived by your customers or prospects in regard such elements as:
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